HELOC / 2nd lien mod program ramping up

From Bloomberg:

U.S. banks are likely to begin signing contracts as soon as this month that would let second mortgages and other home-equity debt be reworked under a government-subsidized program, a Treasury official said.
Contracts may be signed this month or in early August, the official, who asked not to be identified discussing private talks, said in an e-mail yesterday. On April 28, when provisions for the expansion of President Barack Obama’s $75 billion “Home Affordable” plan were announced, officials said the second-lien program would be up and running in about a month.

Looks like the bank stocks will be under some stress again this fall:

“It is well understood that the four major banks would likely need an additional capital injection should they be forced to mark the second-lien mortgages on their balance sheets to a realistic value,” Greenwich Financial’s Frey said.

FDIC clarifies HELOC suspension regulation.

Housing Wire today pointed out that the FDIC gave guidance to banks on when they can and cannot suspend HELOCs. I think the money quote is:

The term “significant decline” is not defined within the regulation itself. However, theFederal Reserve Board’s Official Staff Interpretations (Official Interpretations) to this provision of Regulation Z includes an example indicating that, while a “significant decline” will vary according to the circumstances, such a decline has occurred if the unencumbered equity is reduced by 50 percent.

There is anecdotal evidence of lenders pulling HELOCs even on residence with low LTVs because they are trying to preserve liquidity and reduce risk. This guidance will help stop the lenders going overboard at the same time I think it gives them some protection from lawsuits as the number of affected people not falling within their parameters (and thus having a strong claim) is relatively small.